[deehouie]

The view expressed in this blog and many of the comments on HN is a prime example of survivorship bias[1].

In 1921, you did not know DJI would have done so well over the next 100 yrs.

A very real counter example is the Japanese stock market. The Nikkei peaked at 39,000 in 1989. Thirty yrs later, it's only 28,000. Many blue chip stocks on Tokyo Stock Exch have never recovered their previous high.

[1] https://en.wikipedia.org/wiki/Survivorship_bias

[G3rn0ti]

That’s interesting: Nikkei‘s bad long term performance is due to Japan‘s bad economic policies in the last three decades. Many years of quantitative easing have given rise to a high public debt, a large unemployment rate and an uncompetitive, stagflationist economy after being one of the most innovative producers (“all the cool stuff comes from Japan”).

This is what happens when a central bank keeps on preventing moderate recessions necessary for correcting a nation’s economic failures. The US and Europe should study the case of Japan very closely these days.

https://en.m.wikipedia.org/wiki/Economy_of_Japan

[neffy]

I suspect most countries would prefer Japan's problems to their own.

An alternative view might be that the excessive returns in the US are due to outright financial manipulation using share by backs funded by low interest rates (amongst other things) leading to an insane concentration of money in the stock market and financial sector to the detriment of large sections of US society, its basic infrastructure, and its democracy.

This is what happens when white collar crime is institutionalised.

[andreilys]

This is what happens when white collar crime is institutionalised.

Buying back shares is neither "financial manipulation" nor is it a "white collar crime".

When interest rates are low and you are bullish on the company, it makes perfect sense to buy back shares.

[omgwtfbyobbq]

It's not, but it can be risky for that business.

https://www.hbr.org/2020/01/why-stock-buybacks-are-dangerous...

Course, if financial incentives for the c-suite are tied to share price, that's just another example of choose the reward, choose the consequences.

[kortilla]

> This is what happens when white collar crime is institutionalised.

Do you know what share buybacks even are?

[neffy]

One of the most objectively expensive forms of executive compensation ever invented. Tax efficient for the execs though.

[kortilla]

No. https://www.investopedia.com/ask/answers/042015/why-would-co...

[somewhereoutth]

Indeed. In the US corruption has been legalised. For example healthcare - in a corrupt third world country you might expect to hand cash under the table in order to see a doctor. In the US, that cash goes over the table.

[chii]

high cost itself is a likely outcome of corruption, but insufficient evidence to demonstrate corruption.

The high cost of health care in the US is due to a large number of factors, one of which is lack of transparent pricing, anti-competitive practises in insurance companies, and lack of public-purchasing power for health care. Very little is due to "corruption".

[dev_tty01]

So paying for things directly is corrupt?

[ProjectArcturis]

The Nikkei's bad performance over 30 years is mainly due to how incredibly huge the bubble was before it burst. The real estate underlying the Imperial Palace was valued as much as the entire state of California.

The subsequent 30 years look bad, but the alternative was Great-Depression-style deflation, 25%+ unemployment, and potentially societal collapse.

[Danieru]

To further agree: in 1990 Japan's GDP per capita was about 40K USD at a time while the US's was a "mere" 22k.

That 40k was a fake, not true in the sense japan was not actually 2x more productive than the US. Instead it was the product of a super massive bubble. It took over a decade for the US to "catch up". To be more honest: it was japan which needed time for reality to catch up to nominal values.

At this point in time the US is now well past Japan in GDP per capita, which frankly makes sense. The US is much more innovative, with creative destruction occurring everywhere.

[imtringued]

I know this is never going to happen: Introduce wealth taxes on bank deposits and land ownership. It would help every nation on earth to achieve prosperity. If for some strange political reason you cannot do that, then issue perpetual government bonds because that is the only thing left to do.

By the way. QE has literally no impact on an economy by definition. It's entirely psychological. I don't know why central banks keep doing it. There isn't any private demand left over for credit at current interest rates. Central bank reserves are counted as part of the money supply but their velocity is 0 for practical purposes. You can't withdraw them and you can't use them to purchase goods. The only thing they do is let banks lend out more money which counts for nothing if interest rates are too high.

>This is what happens when a central bank keeps on preventing moderate recessions necessary for correcting a nation’s economic failures.

No such thing is necessary (enduring recessions for no reason). Also, USA is suffering from having the worlds reserve currency and Europe is suffering from having an incomplete euro.

[saiya-jin]

It might surprise you (or not), but Swiss have it. Yearly wealth tax, differently calculated in every canton, based on global assets. Doesn't hurt regular Joe, doesn't bleed the ultra rich enough to leave the safe and luxury lifestyle, but balances the scales a bit.

Possibly largely unrelated solely to this, Switzerland is amazing on another thing - very strong middle class that is not dwindling, unlike most of the western world.

Yeah, expats often complain to no end that services and food are expensive compared to where they came from, but thanks to that tons of folks are not desperate, we don't have slums of poor serving the rest, and you know that even person filling the shelves in supermarket is getting decent wage.

Low criminality, high education, generally very smart general population (which allows to have frequent public votes on important things without shooting one's foot like some other places), tons of personal freedom that average US person can only envy, EU is even worse. It all ties together, and middle class is one of the pillars of this.

[Pokepokalypse]

what's funny is most land-locked countries in the world are desperately poor. With Switzerland, the opposite is true.

[SV_BubbleTime]

Do you think any of that would have scaling issues if the country wasn’t 1/2 the population of New Jersey over twice the area?

[seanmcdirmid]

> tons of personal freedom that average US person can only envy, EU is even worse

Are we talking about the same Switzerland I lived in for two years? Not being able to do laundry on Sunday was actually a big hit to my personal liberty. There are also a lot of little rules that sneak up on you, all perfectly fine if you are willing to conform to basically being Swiss, but if you aren’t it can get uncomfortable.

[saiya-jin]

That is untrue for any of the 5 accommodations I lived in since coming here 11 years ago. Sure you can cherry-pick something that happened to you arbitrarily, project it to whole country and have a stereotype (untrue in this case).

But what we do have is general respect for everybody else living here (unlike f*k the rest like in many other places) - which means we for example don't run wash machine during late evening/night in our apartment, within building having some 50+ apartments.

There is also shared wash machine area in the basement, with dedicated time slots for each family if they want, and there are plenty of slots for Sunday, just like any other day. So much for the restriction you faced.

Some might find some restrictions annoying and infringing on their basic human rights, but the general Swiss logic is more about 'your rights end where other's rights begin'. As a parent of a newborn I definitely like this approach.

[seanmcdirmid]

There is no huge secret about the no laundry on sunday rule, I didn't just make this up:

* https://cowbellsandchocolate.com/sundays-and-quiet-rules/

* https://www.reddit.com/r/askswitzerland/comments/asqw9o/law_...

* https://www.englishforum.ch/other-general/22277-really-forbi...

* https://www.newlyswissed.com/sydney-international-food-festi...

Now, almost every rule/law in Switzerland is local, so it is definitely possible that you lived in a canton or commune without such rules on the book. I most definitely lived in places where that was the rule.

[memonkey]

> Not being able to do laundry on Sunday was actually a big hit to my personal liberty

this is actually hilarious. thank you for sharing.

[MandieD]

Oh, that’s why my sister-in-law, otherwise a thrifty German who moved to Switzerland in part to earn and save more money, pays a cleaning lady to come twice a week and named laundry as one of her duties.

[hattmall]

What's personal freedom if you can't afford to do anything other than have a basic existence. You talk about how expats complain but the average American would feel entirely subjugated if they had to live like the swiss.

[downrightmike]

Oh, the Fed is totally looking at Japan, that is why they started "yield curve control" a little over a year ago, because inflation was clearly going to be a problem for us. Japan is the best and nearest real world model that allowed the country to survive their bad policies, which the USA has way more issues to work through. Undoing all the financial regulations and laws from the Great Depression was super fucking stupid. There would never be anything too big to fail had those remained intact.

[Aeolun]

I don’t know what you consider a high unemployment rate, but Japan doesn’t have one.

It does have a rather larger number of temporary workers than was historically the case.

[FabHK]

Would be interesting to compare a price return index with a total return index (ie including dividends) for Japan over the last half century.

[princeb]

> The US and Europe should study the case of Japan very closely these days.

but they do? bernanke was a scholar of japan's central bank policy.

[88840-8855]

I wonder how much the American Trade War against Japan has contributed to Japans stagnation/"the lost decades".

If I remember correctly then Japan was about to take over the USA in terms of the GDP, but started to become strong in many key industries, and then Raegan, who was running under "Let's make America great again" slogan, initiated the anti-Japanese trade war.

And if I am not mistaken or am not simplifying too much then Trump was even hiring the same consultants from that "anti Japan" trade war to start the trade war with China.

[jbay808]

The Plaza accords were basically this. It was conducted much more amicably than the current brow-beating with China though. I'm sure they had their reasons but Japan was probably a little overconfident in agreeing to those terms at the time.

[deehouie]

I'm stunned why this comment is downvoted. It's exactly what's happening in US relationship with China.

[andrekandre]

was that the "plaza accords"?

[andrekandre]

  > a large unemployment rate

what is japans current unemployment rate?

[zippy5]

I do think there is some real signal in this article in addition to the survivorship bias.

1) Noting that the stock market was boring I think is real indicator of the mass psychology of that time. There is definitely a inverse correlation between enthusiasm for markets and future returns.

2) Noting the returns of standard Oil is a reasonable take. There was a massive expansion of combustion engine production in the preceding two decades and inferring that this would be correlated with increased demand for oil based products is not hot take. Also it doesn’t take a genius to understand a oil is better business that automobiles, recurring revenue and all.

3) Tax rates have historically influenced valuations.

4) I’m not sure how to extrapolate the the German currency situation but I think looking at the relative attractiveness global markets makes sense.

[xorfish]

How well a sector as a whole does is practically irrelevant for what return on investment a investor gets by investing in said sector.

A sector can shrink from 63% of the total market to less than 1% and outperform the market over the time that happened. See the US railway sector from 1900 to 2020:

https://www.credit-suisse.com/media/assets/corporate/docs/ab...

[zippy5]

I think the example of the railroad is biased by the exact same phenomenon. From 1900, In the next 10 years you would see the mass production of automobiles and the invention of the airplane. Basically it’s the story of disruption told from the perspective of the disrupted technology.

In the 1920’s standard oil subsidiaries were still an effective monopoly for petroleum in the us market. Therefore a reasonable proxy for the future profitability of the entire industry in that market assuming that their ruthless anticompetitive behavior allowed them retain their market dominance. Additionally they were profiting off the same disruption in transportation that you are citing, which as we are both acknowledging was massive.

The book Titan is awesome context for this. Wonderful read.

Unlike the technology such as railroads, natural resource commodities and vertically integrated supply chains tend to not be disrupted as easily (very unfortunate for us).

I’m not saying that it couldn’t have gone wrong, but clearly an asymmetrical risk reward at 3-5 PE. So in general you are right, but I think if you find a company that has a great business model, is a monopoly, and is disrupting a massive market, at reasonable price, you have a recipe for outlier returns.

[tedunangst]

So if you had invested 10000 yen per month in nikkei from 1980-1990, where would you be at today?

[jbay808]

Compared with doing what else with your 10,000 yen per month?